Arcos Launches Equity Sale

Arcos Dorados has launched a $1bn follow-on and could price as soon as Wednesday, but news that the LatAm McDonald’s franchise is venturing forth has so far failed to raise expectations for more ECM activity through to year-end. Arcos holders plan to sell 40.4m secondary shares, which would raise $1.07bn at Monday’s $24.12 close if a 10% greenshoe is included. A successful deal would restate the case that equity market is open for follow-ons from well-known issuers – if there are any in need of funds – after TIM Participacoes sold a BRL1.72bn ($1.01bn) follow-on October 4. “TIM and Arcos were very specific situations, as they are companies doing well even in this challenging environment. But you don’t have many stories like that available,” says a Sao Paulo-based ECM banker, who expects few or no deals for the remainder of 2011. The sellers of the Arcos Dorados shares are private equity funds linked to DLJ, Capital International and Gavea, which bought McDonald’s LatAm operations along with Arcos controller Woods Staton in 2007. They are looking to take advantage of the success of a well-demanded $1.25bn April IPO and subsequent strong aftermarket performance. Bank of America Merrill Lynch, Credit Suisse, Citi, Itau, JPMorgan and Morgan Stanley are managing the Arcos follow-on sale. This is the same bank group that led the IPO – the region’s only IPO to price above its target range this year.